What's It Really Worth? Revealing Hidden Costs and Full ROI of ERP

Posted by James on August 26, 2016 at 11:34 AM
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True costs and real gains. Those are the things you need to know before embarking on an Enterprise Resource Planning system implementation. Why are they important? Because an ERP implementation will likely touch every part of your organization, and you want to know what that equates to - both in terms of impact and benefit - for the bottom line. The two parts are, of course, related. You need to reveal the hidden costs so that you can factor them in to the potential return on investment of your new solution. Completing a thoughtful financial justification for an ERP implementation project will help eliminate mystery about the actual costs and reveal the many available benefits.

Wondering where to begin? Our next two posts will attempt to provide a couple of starting points; one for each piece. We'll start with the hidden costs, since you'll need to know where these might come from in order to glean a complete and accurate picture. Then we'll proceed to the ROI and see how you can determine the gains that might emerge to justify such a huge investment.

Hidden ERP Costs

What do you absolutely not want in an implementation project? You don't want that final bill to make the original quote look like spare change. Some expenses are obvious: hardware, software, and license and maintenance fees, for example. Others - and the ones we really care about here - are hard to see coming. Our first post will help you guard against seven hidden costs before you finalize your ROI. Generally speaking, you need to plan and budget for unforeseen costs that come from the following three broad categories:

  • Time: It takes time to successfully plan, implement, understand, and use new solutions, and that time has an associated cost.
  • Training: Existing employees will need to be trained in the use, development, and documentation of the new system.
  • Tailoring: It's unlikely that any solution will fit your business perfectly right out of the box. Additionally, as your organization evolves, your ERP system will need to adapt to complement your business processes. Customization can require additional time and training.

By no means are there only seven additional costs. However, our post will detail the less obvious costs in order to help make your ROI analysis more representative of reality and prepare you for situations that might have otherwise gone unforeseen until it was too late.

ROI of ERPReturn on any capital investment is a key factor in unlocking your company's business potential. The challenge is in understanding the costs (both direct and indirect) and the benefits. In terms of ERP system investment, having a handle on initial purchase and implementation costs, as well as ongoing costs, will help you come out in the black after everything is balanced. For our second post in this series, we'll concentrate on the gains that are possible from a successfully implemented system.

Besides expenses, there are, of course, benefits. The two general categories of direct benefits are:

  1. cost savings and cost avoidance
  2. increased revenue and profit

As our post will explain in detail, all direct benefits from investment in an ERP system flow from the following improvements:

  • enhanced coordination of resources to deliver the right products in the right quantities at the right time
  • greater visibility into demand, allowing for targeted planning
  • better management of work flow and production schedules
  • precise management of materials, equipment, and personnel

There are indirect benefits as well. Depending on your specific business needs and, these might also prove valuable to your organization:

  • increased productivity from employee job satisfaction
  • reliable processing and stable scheduling, yielding fewer unwanted surprises
  • improved marketing and product deployment thanks to reliable analysis and enhanced business intelligence
An honest evaluation of hidden costs plus a realistic projection of ROI will help you understand the benefits your company can look forward to by investing in ERP technology. So check out our brief series, or chat with your Trusted Technology Advisor, and start taking the mystery out of this major, but essential, business investment.

Topics: ERP

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